In accounting-speak, a debt someone owes you for goods or services you provided to them is an account receivable. Accounts receivable are part of your assets. They represent the amount of money owed to you by your customers, and they have value to you.

Of course, in reality they are valuable only if you're able to collect them. And if you're going to be able to collect them, you'll have to develop a system for keeping track. Your system must include a way of keeping track of accounts and of producing what is called an accounts receivable aging report.

Once you've figure out how you're going to keep track of accounts, your next step will be to decide when you want to begin collection efforts. Will it be the day after the bill is due? A week after? A month after?

The answer will depend upon a couple of factors. First, it will depend upon who the customer is. You're probably not going to crack down on your brother-in-law if the payment is one day late (then again, maybe you will). Nor are you going to crack down on an otherwise reliable customer who happens to be one day late, one time. If, however, the customer is chronically late with payments, you may want to treat it as overdue right away (as well as reconsider whether you should be extending credit to that customer).

It will also depend upon the size of the balance. If the balance is especially large, and you're dependent upon the payment to meet your own obligations, you may want to treat it as overdue one day after the bill is due. If, however, the balance is especially small, you may not want to treat it as overdue for several weeks. You'll just have to ask yourself whether your time is well spent chasing after small accounts.

Accounts receivable aging reports. An accounts receivable aging report is really just a fancy name for a piece of paper (or, if you prefer, a computer screen) that tells you which accounts are past due, and by how much.

There a couple of ways you can go about generating an accounts receivable aging report. Far and away the easiest and most effective way is to buy a software program built specifically for that purpose, that generates the report automatically based on your sales records. Most basic bookkeeping software for small businesses will be able to generate such a report. You should be able to buy the software for about $100 in the business software section of your favorite software store. It's well worth it.

If you don't use a computer or if you'd prefer not to use software for that purpose, you can produce an accounts receivable aging report the way it's been done for many, many years: by hand. This method involves three processes. The first is to create some written record of the account, such as an invoice, which includes the customer's name, the date of purchase, the amount of purchase, etc. These can be organized in a series of folders put in a drawer or a series of note cards put in a card catalogue. It doesn't much matter how you do it; it just matters that it's well organized. Generally duplicate records are kept, and they are organized both by customer, and by date.

The second is to create some method for reviewing the accounts periodically. For example, you might want to see your 30-day accounts 35 days after the sale, your 60-day accounts 65 days after the sale, and so on. If you have a secretary, you could assign the task to him or her. If you don't, you could keep track on your office calendar. You should be careful to spread out your account reviews. If you don't pay close attention to what you're doing, you'll end up with 20 files to review on one day and none the next. You can avoid that problem by being flexible on your reviews: some 30-day accounts get reviewed after 33 days, others after, say, 37 days, and so on.

The third is to coordinate your account files with your ledgers or with whatever system you're using for keeping track of sales and recording payments. If you're to review an account, you certainly want to know whether it's been paid. A possible solution is to have your secretary, if that's applicable, pull both the account and the ledger on the review date, or you can pull it yourself.

A copy of a sample ledger sheet that can also be used as a statement to send your customers is available in the Business Tools section. The ledger sheet is an Excel template (version 4.0 or higher) that can be used and reused as often as you like.